TSA fighting rate erosion

Friday, December 21, 2012

The Transpacific Stabilization Agreement’s recommendation of another general rate increase this week is part of its continuing campaign to prepare for contract renewals in 2013.
TSA Executive Administrator Brian M. Conrad said the 15 liner shipping companies that are part of the discussion agreement “cannot afford another year in which expiring contracts and seasonally weak demand erode rate levels, which are then extended for 12 months in the next year’s contracts. Lines see breaking this cycle as key to their viability going forward.”
Niels Erich, a TSA spokesman, elaborated on the effort in an interview with American Shipper, saying that “in this particular case, they really want to make sure they have a serious baseline in place that they can build on in their contract negotiations.”
TSA members control more than 90 percent of the trade from the Far East and Indian Subcontinent to the United States. They said Tuesday they are recommending a general rate increase in dry cargo rates, effective Jan. 15, of $600 per 40-foot container (FEU) on shipments to U.S. West Coast ports and inland coastal state destinations, and $800 per FEU to all other destinations.
TSA contracts commonly run from May 1 through April 30. This week’s announcement is the latest in a string of proposed rate hikes the TSA made in the second half of this year:

In July, TSA members announced dry cargo increases averaging $500 per 40-foot container (FEU) to the U.S. West Coast and $700 per FEU for all other shipments. TSA members recommended increases to refrigerated cargo rates of $1,000 per FEU to the U.S. West Coast and $1,250 per FEU for all other destinations, with effect from Aug. 15.

In September, they recommended rate increases of $800 per FEU to the U.S. West Coast; $1,000 per FEU via all-water to the U.S. East and Gulf coasts; and $1,200 per FEU for intermodal shipments via all coasts. They suggested these become effective with contracts, from mid-October going forward, including “early bid” contracts concluded in late 2012 and early 2013, as well as standard contracts which would typically take effect on May 1, 2013. They also “reiterated the need for full fuel cost recovery.”

In October, they recommended a dry cargo general rate increase of $400 per FEU and $600 per FEU for all other destinations, effective December 1. They later postponed the recommended start day to Dec. 15.

“Some of this has to do with the lines’ contracts and when those contracts expire and when those contracts have the minimum volume commitments fulfilled,” Erich explained.
Many shippers fulfill their minimum volume commitments during the peak shipping season that ends in October or November, and as those contracts are fulfilled and contracts are reopened, “rates can erode because it is the off-season,” he said. “We don’t want to have this rate erosion take place and then put in the increase and wake up and at best we are back where we started.”
He said carriers “feel like they have been playing catch-up for a period of years.”
“If we go back to the beginning of the serious downturn in 2008-09, carriers have had maybe four quarters of significant rate improvement that was tied to various things, such as tight capacity. That is essentially one year out of four and you can’t run a global, capital-intensive business based on that,” Erich addedTSA’s own revenue index for U.S. West Coast and inland intermodal cargo has a base of 100 that was set using prices in June 2008. This year it has ranged from a low of 82.47 in January to 90.68 in September and 90.54 in October, and far below its peak of 114.75 set in August 2010.
Erich said “we have been going through a year where cargo demand was stagnant for much of the year.”
He also said shipping has been “headline driven” and increasingly volatile. “The market in general has tended to over react to good and bad news,” he said. - Chris Dupin